White Paper on Local Public Finance, 2011

Transcription

1 FY29 Settlement White Paper on Local Public Finance, Illustrated - Ministry of Internal Affairs and Communications

2 The Role of Local Public Finance 1 The Status of Local Public Finance 4 FY29 Settlement Overview... 4 Scale of Account Settlement... 5 Revenue and Expenditure Settlement... 5 Revenues Revenue Breakdown Revenue Trends Local Taxes Local Allocation Tax Expenditures Expenses by Function Expenses by Type Flexibility of the Financial Structure Ordinary Balance Ratio Real Debt Service Ratio and Debt Service Payment Ratio... 2 Outstanding Local Government Borrowing Trends in Outstanding Local Government Borrowing Outstanding Local Finance Borrowing Local Public Enterprises Ratio of Local Public Enterprises Number of Businesses Operated by Local Public Enterprises Scale of Financial Settlement Management Status Promotion of the Soundness of Local Public Finance Overview of the Act on Assurance of Sound Financial Status of Local Governments, etc Status of the Ratio for Determining Soundness and the Financial Shortfall Ratio Trends and Issues in Local Public Finance Decentralization (1) Revision of obligations and limitations (2) Transfer of authority to municipalities (3) Reform of local agencies of the national government (4) Conversion of conditional national treasury disbursements to bulk grants (5) Ensuring enhanced local tax revenue sources (6) Revision of the allocation tax system (7) Discontinuation of the contribution system for businesses controlled by the national government (8) Fundamental revision of the Local Autonomy Act Creation of Regional Strength and New Growth Strategy (1) Creation of regional strength (2) Economic policy and regional revitalization based on new growth strategy Administrative and Fiscal Reform (1) Optimization of salaries and promotion of appropriate workforce management (2) Reform of local public enterprises (3) Promotion of reform of local public accounting Promotion of information disclosure... 34

3 The Role of Local Public Finance Prefectures and municipalities (cities, towns, and villages) are the central actors in various administrative areas, including school education, welfare and public health, police and fire services, and the construction of such public works as roads and sewage systems, thereby fulfilling a major role in the lives of the citizens of the nation. This brochure describes the status of local public finance (which comprises collectively the finances of individual local governments), the state of settlements for FY29, and efforts toward establishing the financial soundness of local public entities, with particular attention given to ordinary accounts. Classification of the Accounting of Local Governments Applied in the Settlement Account Statistics Although the accounts of local governments are divided into general accounts and special accounts, the classification of accounts is not uniform between local governments. Accordingly, a uniform method for settlement account statistics has been adopted in this paper. Accounts are classified as ordinary accounts, which cover the general administrative sector, and other accounts (public business accounts). This makes it possible to clarify the financial condition of local governments as a whole and to make a statistical comparison between local governments. Local Government Accounts The Role of Local Public Finance General administrative sector accounts Ordinary accounts Other accounts (Public business accounts) Public enterprise accounts Water supply, transportation, electrical power, gas, hospitals, sewer systems, residential land development, etc. Latter-stage elderly National health Nursing care medical care insurance accounts insurance accounts accounts The Status of Local Public Finance Trends and Issues in Local Public Finance Etc. 1

4 How large is local public finance compared with central government finance? The ratio of gross domestic expenditure consisting of local public finance is 12.%, about 2.6 times that of the central government. Gross Domestic Expenditure and Local Public Finance Gross domestic expenditure (nominal) 474,4.2 billion Government sector 116,346.8 billion (24.5%) Net export of goods and services 4,28.1 billion (.8%) Local government Local government 57,61.2 billion (12.%) Ordinary account 5,347.1 billion (1.6%) Central government Central government 21,865.6 billion (4.6%) Social security fund 37,42. billion (7.9%) Corporate sector 63,29.3 billion (13.4%) Household sector 29,374.9 billion (61.3%) Private sector 353,665.2 billion (74.6%) 2

5 In which areas are local expenditure ratios high? Local expenditure ratios are higher than national levels chiefly in areas that are deeply related to daily life, such as public health and sanitation, school education, police and fire services, and social education. Ratio of National and Local Governments in Main Expenditures by Function (final expenditure base) Ratio of expenditures by function Sanitation expenses School education expenses 3.8% 8.7% Local ratio National ratio 57% 43% Public health centers, garbage and human waste disposal, etc. Elementary and junior high schools, kindergartens, etc. 94% 6% 89% 11% The Role of Local Public Finance Judicial, police, and fire service expenses 4.% 78% 22% Social education expenses, etc. 3.% Community centers, libraries, museums, etc. 72% 28% National land development expenses Public welfare expenses (excluding pension expenses) 9.9% 18.1% National land conservation expenses1.8% Commercial and industrial expenses Public debt payments Housing expenses, etc. Disaster recovery expenses, etc. Agriculture, forestry and fishery industry expenses Onkyu pension expenses Pension expenses (of public welfare expenses) Defense expenses General administration expenses, etc. 7.9% 18.9% 2.%.2% 1.9%.5% 5.9% 2.9% 8.% Urban planning, roads and bridges, public housing, etc. Child welfare, elderly care and welfare, public assistance, etc. Rivers and coasts 41% 5% 59% 69% 68% 4% 6% 39% 61% 36% 64% 4% 96% 1% Family register, basic resident register, etc. 86% 31% 32% 41% 5% 59% 1% 14% The Status of Local Public Finance Trends and Issues in Local Public Finance Others 2.5% 1% 99% 3

6 The Status of Local Public Finance FY29 Settlement Overview Revenues and expenditures increased due to national economic policy, etc. 1 Revenues 98,365.7 billion (up 6,152.2 billion, 6.7%, year on year) Although local tax revenues (mainly the two corporate taxes) decreased, revenues from local allocation tax and municipal bonds (mainly extraordinary financial countermeasures bonds), etc., increased. In addition, total revenues rose for the second consecutive year with an increase of 6,152.2 billion, due to an increase of national treasury disbursements resulting from national government economic policy measures. 2 Expenditures 96,16.4 billion (up 6,415. billion, 7.2%, year on year) Although personnel expenditures and public debt payments decreased, total expenditures rose for the second consecutive year with an increase of 6,415. billion, due to an increase in investment expenses and other expenses (mainly subsidies, etc.) resulting from national government economic policy measures, etc. 3 Flexibility of the Financial Structure The ordinary balance ratio reached its highest level since calculation was started, and has maintained a high level. 96 (%) FY1999 FY2 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 (Fiscal year) 4 Trends in Outstanding Borrowing that Should be Shouldered by Ordinary Accounts Amounts remained at a high level (Unit: trillion yen) Outstanding public enterprises bonds (borne by the ordinary account) Outstanding borrowing from the special account for the local allocation tax Outstanding local government bonds FY1997 FY22 FY25 FY26 FY27 FY28 FY29 (FY end) 4 Notes: 1. Outstanding public enterprises bonds (borne by the ordinary account) are estimates based on settlement account statistics. 2. Outstanding local government bonds exclude special fund public investment bonds. 3. Figures for each item that are less than the given unit are rounded off. Therefore, they do not necessarily add up exactly to the total.

7 Scale of Account Settlement Revenues and expenditures both showed year-on-year increases in settlement amount for the second consecutive year. The main factor for the increase in revenues was an increase in revenue from national treasury disbursements, local allocation tax, and municipal bonds (mainly extraordinary financial countermeasures bonds), etc., resulting from national government economic policy measures, etc. The main factor for the increase in expenditures was an increase in investment expenses, subsidies, etc., and reserves, etc., for each type of grant fund for special purposes, resulting from national government economic policy measures, etc. (Unit: billion yen) Revenue and Expenditure Settlement The real single fiscal-year balance showed a surplus for the second consecutive year, while the single-year balance showed a surplus for the first time in three years. Category 99,887.8 Real single FY balance Single FY balance Real balance 97, , , , , , , , ,147.6 Total revenues 92, , ,365.7 billion 96,16.4 billion Total expenditures FY1997 FY22 FY25 FY26 FY27 FY28 FY29 (Fiscal year) FY billion 172. billion 1,444.7 billion Settlement period FY billion 78.4 billion 1,279.7 billion No. of organizations with a deficit FY29 44 (1,4) 579 (1,153) 13 (13) FY (1,315) 843 (1,539) 19 (19) The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance Notes: 1. Real single FY balance refers to the amount calculated by adding reserves and advanced redemption of local loans for the public finance adjustment fund to the single FY balance and subtracting public finance adjustment fund reversals. Single FY balance refers to the amount calculated by subtracting the real balance of the previous fiscal year from the real balance of the relevant fiscal year. Real balance refers to the amount calculated by subtracting the revenue resources that should be carried over to the next fiscal year from the income expenditure balance. 2. The number of organizations with a deficit does not include partial administrative associations or wide-area local public bodies. Figures in parentheses indicate the number of organizations including partial administrative associations and wide-area local public bodies. 3. denotes negative figures. 5

8 Revenues Where do the funds for local government activities come from? 1 Revenue Breakdown The revenue of local governments comes mainly from local taxes (about 36%), national treasury disbursements, local allocation tax, and local bonds, in that order. General Revenue Resources Revenue resources for which the use is not specified, such as local taxes and local allocation tax, are called general revenue resources. Here, the total of local taxes, local transfer taxes, local allocation tax, special local grants, etc., is treated as general revenue resources. It is important for local governments to ensure sufficient general revenue resources in order to handle various administrative needs properly. Net total 98,365.7 billion Other revenue resources 16,442.6 billion (16.7%) Local bonds 12,396. billion (12.6%) National treasury disbursements 16,765.3 billion (17.%) Prefectures total 5,968.2 billion Other revenue resources 8,975.1 billion (17.6%) Local bonds 7,755.7 billion (15.2%) National treasury disbursements 8,516.8 billion (16.7%) Municipalities total 53,554.7 billion Other revenue resources 11,887.6 billion (22.2%) Local bonds 4,666.9 billion (8.7%) National treasury disbursements 8,248.5 billion (15.4%) General revenue resources 52,761.8 billion (53.6%) Local taxes 35,183. billion (35.8%) Local transfer tax 1,296.6 billion (1.3%) Special local grants 462. billion (.5%) Local allocation tax 15,82.2 billion (16.1%) General revenue resources 25,72.7 billion (5.5%) Local taxes 16,58.8 billion (32.4%) Local transfer tax 81.3 billion (1.6%) Special local grants 216. billion (.4%) Local allocation tax 8,184.1 billion (16.1%) Other general revenue resources 1.4 billion (.%) General revenue resources 28,751.7 billion (53.7%) Local taxes 18,674.1 billion (34.9%) Local transfer tax billion (.9%) Special local grants 246. billion (.5%) Local allocation tax 7,636.1 billion (14.3%) Other general revenue resources 1,79.3 billion (3.2%) Local transfer tax: Collected as a national tax and transferred to local governments. Includes local gasoline transfer tax, etc. Special local grants: Includes such things as the special child allowance in response to the increased local burden as a result of the expanded child allowance system in FY26 and FY27. Local allocation tax: An intrinsic revenue source shared by local governments in order to adjust imbalances in tax revenue among local governments and to guarantee revenue sources so that local governments in every region can provide a consistent level of administrative services. Calculated as a fixed ratio of five national taxes. (See pg.11, "4. Local Allocation Tax.") National treasury disbursements: A general name for subsidies, etc., disbursed from the central government to local governments for contributions, commissioning expenses, incentives for specific measures, or financial assistance. Local bonds: The debts of local governments for which redemption continues for more than one fiscal year. 6 Notes: 1. The figures here are mainly for ordinary accounts. (For the accounts of public enterprises, such as water supply and sewerage businesses, transportation businesses, and hospitals, see Local Public Enterprises. ) 2. Figures for each item that are less than the given unit are rounded off. Therefore, they do not necessarily add up exactly to the total.

9 2 Revenue Trends General revenue resources constituted approximately 54% of total revenues, a year-on-year decrease resulting from a drop in revenue from local taxes and special local grants. Nationwide FY1997 FY22 FY25 FY26 FY27 FY28 FY29 Local transfer tax 1.1% ( 1.1 trillion) Local taxes 36.2% ( 36.2 trillion) Local transfer tax.7% (.6 trillion) Local taxes 34.4% ( 33.4 trillion) Local transfer tax 2.% ( 1.8 trillion) Local transfer tax 4.1% ( 3.7 trillion) Local transfer tax.8% (.7 trillion) Local transfer tax.7% (.7 trillion) Local transfer tax 1.3% ( 1.3 trillion) Local allocation tax 17.1% ( 17.1 trillion) General revenue resources 54.4% ( 54.4 trillion) Net Total 99.9 trillion Special local grants.9% (.9 trillion) Local allocation tax 2.1% ( 19.5 trillion) General revenue resources 56.% ( 54.5 trillion) Local taxes 37.4% ( 34.8 trillion) Net Total 97.2 trillion Special local grants 1.6% ( 1.5 trillion) Local allocation tax 18.2% ( 17. trillion) General revenue resources 59.3% ( 55.1 trillion) Local taxes 39.9% ( 36.5 trillion) Net Total 92.9 trillion Special local grants.9% (.8 trillion) Local allocation tax 17.5% ( 16. trillion) General revenue resources 62.3% ( 57. trillion) Local taxes 44.2% ( 4.3 trillion) National treasury disbursements 14.4% ( 14.4 trillion) Net Total 91.5 trillion Special local grants.3% (.3 trillion) Local allocation tax 16.7% ( 15.2 trillion) General revenue resources 62.% ( 56.5 trillion) Local taxes 42.9% ( 39.6 trillion) Net Total 91.2 trillion Special local grants.6% (.5 trillion) Local allocation tax 16.7% ( 15.4 trillion) General revenue resources 6.9% ( 56.2 trillion) Local taxes 35.8% ( 35.2 trillion) Net Total 92.2 trillion Special local grants.5% (.5 trillion) Local allocation tax 16.1% ( 15.8 trillion) General revenue resources 53.6% ( 52.8 trillion) Net Total 98.4 trillion National treasury disbursements 13.6% ( 13.2 trillion) National treasury disbursements 12.8% ( 11.9 trillion) National treasury disbursements 11.5% ( 1.5 trillion) National treasury disbursements 11.3% ( 1.3 trillion) National treasury disbursements 12.7% ( 11.7 trillion) National treasury disbursements 17.1% ( 16.8 trillion) Local bonds 14.1% ( 14.1 trillion) Local bonds 13.7% ( 13.3 trillion) Local bonds 11.2% ( 1.4 trillion) Local bonds 1.5% ( 9.6 trillion) Local bonds 1.5% ( 9.6 trillion) Local bonds 1.8% ( 9.9 trillion) Local bonds 12.6% ( 12.4 trillion) Other revenue resources 17.1% ( 17.1 trillion) Other revenue resources 16.7% ( 16.3 trillion) Other revenue resources 16.7% ( 15.5 trillion) Other revenue resources 15.7% ( 14.4 trillion) Other revenue resources 16.2% ( 14.8 trillion) Other revenue resources 15.6% ( 14.4 trillion) Other revenue resources 16.6% ( 16.4 trillion) The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance Note: National treasury disbursements includes special grants to measures for traffic safety and grants to cities, towns and villages where national institutions are located. 7

10 3 Local Taxes Local taxes consist of prefectural taxes and municipal taxes. (In the case of the special wards of Tokyo, the Tokyo Metropolitan Government collects a portion of municipal taxes.) Composition of Revenue from Prefectural Taxes (FY29 settlement) Total 14,654.5 billion Other taxes billion (1.4%) Automobile acquisition tax 231. billion (1.6%) Prefectural tobacco tax billion (1.7%) Real estate acquisition tax 44.2 billion (2.8%) Light oil delivery tax billion (5.6%) Automobile tax 1,654.4 billion (11.3%) Local consumption tax 2,413.1 billion (16.5%) Prefectural inhabitant tax 5,766.3 billion (39.3%) On interests billion (1.1%) Individual 4,914.3 billion (33.5%) Corporate billion (4.7%) Enterprise tax 2,94.8 billion (19.8%) Corporate 2,71.1 billion (18.4%) Individual 23.7 billion (1.4%) Composition of Revenue from Municipal Taxes (FY29 settlement) Total 2,528.4 billion City planning tax 1,232.5 billion (6.%) Municipal tobacco tax billion (3.7%) Other taxes 53.8 billion (2.7%) Municipal inhabitant tax 9,124.1 billion (44.4%) Individual 7,348.9 billion (35.8%) Corporate 1,775.2 billion (8.6%) Fixed asset tax 8,874.4 billion (43.2%) Note: Municipal tax revenue figures include municipal taxes collected by the Tokyo Metropolitan Government. 8

11 Prefectural tax revenues dropped from the previous fiscal year due to decreases in the two corporate taxes (corporate inhabitant tax, corporate business tax) resulting from a sluggish economy. A decrease in revenues from corporate municipal taxes and individual municipal taxes also led to a year-on-year decrease in municipal tax revenues. Trends in Prefectural Tax Revenues (Unit: trillion yen) Note: Figures in parentheses indicate the component ratios of the business tax and prefectural inhabitant tax. Trends in Municipal Tax Revenues (Unit: trillion yen) , (34.1%) (26.6%) (32.3%) (28.2%) (25.%) (23.5%) (34.2%) (24.4%) (31.2%) (3.2%) 1.4% 5.6% 1.6% 11.3% 1.7% 2.8% (19.8%) (34.8%) 25.8 (33.3%) % (39.3%) FY1997 FY22 FY25 FY26 FY27 FY28 FY29 (Fiscal year) 21, (45.8%) 13, , , , (39.7%) (41.7%) 16, , (45.%) 18,664.2 FY1997 FY22 FY25 FY26 FY27 FY28 FY29 (Fiscal year) (47.7%) 17, ,654.5 billion Other taxes 16.5% 1.4% 18.4% 4.7% 1.1% 21, , ,528.4 billion % 6.% 3.7% 43.2% 8.6% (47.1%) (44.4%) 35.8% Light oil delivery tax Automobile acquisition tax Automobile tax Prefectural tobacco tax Real property acquisition tax Local consumption tax Individual Corporate Corporate Corporate interest Individual Other taxes City planning tax Municipal tobacco tax Fixed asset tax Corporate Individual Enterprise tax Prefectural inhabitant tax Municipal inhabitant tax The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance Notes: 1. Figures in parentheses indicate the component ratio of the municipal inhabitant tax. 2. Municipal tax revenue figures include municipal taxes collected by the Tokyo Metropolitan Government. 9

12 In order for local governments to provide administrative services in response to local needs on their own responsibility and at their own discretion, it is necessary to build a local tax system in which the uneven distribution of tax sources is minimized and the stability of tax revenue is guaranteed. Comparing local tax revenue amounts, with the national average set at 1, Tokyo, the highest, was approximately 2.7 times the amount for Okinawa Prefecture, which was the lowest. Index of Per Capita Revenue in Local Tax Revenue (with national average as 1) FY29 settlement amount Hokkaido Aomori Iwate Miyagi Akita Yamagata Fukushima Ibaraki Tochigi Gunma Saitama Chiba Tokyo Kanagawa Niigata Toyama Ishikawa Fukui Yamanashi Nagano Gifu Shizuoka Aichi Mie Shiga Kyoto Osaka Hyogo Nara Wakayama Tottori Shimane Okayama Hiroshima Yamaguchi Tokushima Kagawa Ehime Kochi Fukuoka Saga Nagasaki Kumamoto Oita Miyazaki Kagoshima Okinawa National Average Local taxes total 35.4 trillion Individual inhabitant tax 12.2 trillion Two corporate taxes 4.8 trillion Local consumption tax (post settlement) 2.4 trillion Fixed asset tax 8.9 trillion Max/min: 2.7 Max/min: 3.1 Max/min: 6.1 Max/min: 1.7 Max/min: Notes: 1. Max/min" indicates the value obtained by dividing the maximum value of per-capita tax revenue for each prefecture by the minimum value. 2. Local tax revenue amounts include local corporation special transfer tax, but do not include overassessment, discretionary tax earmarked for general use, or discretionary tax earmarked for special use. Further, the value is the amount after settlement of local consumption tax. 3. Individual inhabitant tax revenue is the total of the prefectural individual inhabitant tax (on a per-capita basis and on an income basis) and the municipal individual inhabitant tax (on a per-capita basis and on an income basis), and excludes overassessment. 4. Revenue from the two corporate taxes is the total of the corporate prefectural inhabitant tax, the corporate municipal inhabitant tax, and the corporate business tax, and excludes overassessment. 5. Fixed asset tax revenues include prefectural amounts, and exclude overassessment. 6. Calculations were made in accordance with the basic resident register population as of March 31, 21.

13 4 Local Allocation Tax From the perspective of local autonomy, it would be the ideal for each local government to ensure the revenue sources necessary for administrative activities through local tax revenue collected from their residents. However, there are regional imbalances in tax sources, and many local governments are unable to acquire necessary tax revenue. Accordingly, the national government collects financial resources that would normally be attributable to local tax revenue and reallocates them as local allocation tax to local governments that have weaker financial capabilities. 1 Determining the total amount of local allocation tax The total amount of the local allocation tax is determined in accordance with estimates of standard revenue and expenditures in local public finance as a whole, based on fixed ratios for national taxes (32% for income tax and liquor tax, 34% for corporate tax, 29.5% for consumption tax, and 25% for tobacco tax). The total amount of local allocation tax in FY29 was 15,82.2 billion, up 2.7% year on year. 2 How regular local allocation taxes are calculated for each local government The regular local allocation tax for each local government is calculated using the following mechanism. Standard financial requirements Unit cost Measurement unit (national census population, etc.) Correction coefficient (gradated correction, etc.) Standard financial revenues Standard local tax revenue Regular allocation tax amount Standard financial requirements Notes: 1. Standard financial requirements are calculated as the financial requirements of each local government based on rational and appropriate standards. Calculation of the local share of the national treasury projects, such as compulsory education, public assistance, and public works, is mandatory. Beginning in FY21, part of the standard financial requirements is being transferred to special deficit-financing local bonds (extraordinary financial countermeasures bonds) as an exception to Article 5 of the Local Finance Law. 2. Normal local tax revenue does not include discretionary tax earmarked for general use or discretionary tax earmarked for special use imposed independently by the local government, or overassessment that exceeds the standard tax rate stipulated in the Local Tax Law. Calculation rate (75%) + Local transfer tax, etc. Standard financial revenues 11 The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance

14 3 Function of the local allocation tax The function of the local allocation tax is to adjust imbalances in financial resources between local governments in order to guarantee that local governments have the financial resources that enable them to provide standard administrative services and basic social capital to their residents in each region. Adjustment of financial resources through local allocation tax has prevented the size of population, etc., from creating significant differences in the ratio of total revenue composed of general financial resources. Ratio of Total Revenue for Municipalities Composed of General Financial Resources 1 (%) % 57.8% 59.8% 58.1% Ratio of total revenue composed of general financial resources Local transfer tax, etc. Special local grants 4.7 Local allocation tax General financial resources Local taxes Midsize cities Small cities Towns and villages Towns and villages (population of 1, or more) (population of less than 1,) 12 Notes: A midsize city refers to a city with a population of 1, or more excluding government ordinance-designed cities, core cities, and special cities, and a small city refers to a city with a population of less than 1,, excluding the aforementioned exceptions.

15 Expenditures What are taxes spent on? 1 Expenses by Function When expenses are classified by function, we see that many financial resources are utilized for public welfare expenses, education expenses, and civil engineering work expenses. In prefectures, such resources are mainly utilized for education expenses, public welfare expenses, and civil engineering work expenses, in that order. In municipalities, they are primarily utilized for public welfare expenses, general administrative expenses, and civil engineering work expenses, in that order. Public welfare expenses: Expenses for the construction and operation of welfare facilities for children, the elderly, the mentally and Expenses physically disabled, etc., and for the implementation of public assistance, etc. Education expenses: Expenses for school education, social education, etc. Civil engineering work expenses: Expenses for the construction and maintenance of public facilities, such as roads, rivers, housing, and parks. Public debt payment: Expenses for the payment of principal, interest, etc., on debts. Composition of Expenditure by Function (FY29 settlement) Public welfare expenses Education expenses Civil engineering work expenses Public debt payments General administration expenses Commerce and industry expenses Sanitation expenses Agriculture, forestry and fishery expenses Other expenses Net total 96,16.4 billion 19,767.9 (Unit: billion) 16, , , , ,575. 5, ,553. 6,96. Share 2.6% 17.1% 13.8% 13.4% 11.2% 6.8% 6.2% 3.7% 7.2% Prefectures 5,245.3 billion 6,763.6 (Unit: billion) 1, ,69.2 6,67.1 3,466. 4, , , ,98.7 Share 13.5% 21.7% 13.2% 13.1% 6.9% 8.5% 3.7% 5.2% 14.2% Municipalities 52,18.4 billion 14,839.1 (Unit: billion) 5, , , , , , , ,563.7 Share 28.5% 1.7% 13.2% 12.2% 15.2% 4.5% 8.2% 2.5% 5.% The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance 13

16 Breakdown of Public Welfare Expenses by Purpose Elderly welfare Child welfare Social welfare Public assistance Disaster relief Net total 19,767.9 billion 5,76.8 (Unit: billion 5, ,25.9 3, Share 28.9% 28.1% 26.6% 16.4%.1% Prefectures 6,763.6 billion 3,39.1 (Unit: billion 1,28.6 2, Share 44.9% 17.9% 33.3% 3.7%.1% Municipalities 14,839.1 billion 3,44.8 (Unit: billion 4, , , Share 2.5% 33.1% 25.9% 2.5%.% Breakdown of Educational Expenses by Purpose Elementary school Junior high school Educational general affairs Senior high school Health and physical education Social education Other Net total 16,438. billion 4,966.8 (Unit: billion 2, , , ,28.7 1,23.4 1,245.9 Share 3.2% 17.5% 16.2% 13.8% 7.4% 7.3% 7.6% Prefectures 1,926.2 billion 3,571.8 (Unit: billion 2,54.9 1, , Share 32.7% 18.8% 18.2% 19.2% 1.% 1.6% 8.5% Municipalities 5,563.4 billion 1,399.4 (Unit: billion ,11.5 1, Share 25.2% 14.8% 12.7% 3.1% 2.% 18.7% 5.5% Breakdown of Civil Engineering Work Expenses by Purpose Urban planning Roads and bridges Rivers and coasts Housing Harbors Other Net total 13,292. billion 4,897.9 (Unit: billion 4,39.3 Share 36.8% 33.% Prefectures 6,69.2 billion 1,31.1 (Unit: billion 2, ,32.2 Share 19.7% 4.2% 19.7% Municipalities 6,886.3 billion 3,672.2 (Unit: billion 1,779.9 Share 53.3% 25.8% 1, % % 1, % % % % % % % % % 14

17 Trends in the Breakdown of Expenditures by Function (ordinary account net total) In recent years, welfare expenses, public debt payments, etc., have increased, while there has been a decline in such items as agriculture, forestry, and fishery expenses and civil engineering work expenses. Unit: Ratio with FY1997 set at 1. FY1997 FY22 FY27 FY29 General administrative expenses Welfare expenses Sanitation expenses Agriculture, forestry and fishery expenses Commerce and industry expenses Civil engineering expenses Education expenses Public debt payments Total expenditures General administrative expenses Welfare expenses Sanitation expenses Agriculture, forestry and fishery expenses Commerce and industry expenses Civil engineering expenses Education expenses Public debt payments Total expenditures General administrative expenses Welfare expenses Sanitation expenses Agriculture, forestry and fishery expenses Commerce and industry expenses Civil engineering expenses Education expenses Public debt payments Total expenditures General administrative expenses Welfare expenses Sanitation expenses Agriculture, forestry and fishery expenses Commerce and industry expenses Civil engineering expenses Education expenses Public debt payments Total expenditures Of which are for social welfare Of which are for welfare for the elderly Of which are for child welfare Of which are for cleaning expenses Of which are for social welfare Of which are for welfare for the elderly Of which are for child welfare Of which are for cleaning expenses Of which are for social welfare Of which are for welfare for the elderly Of which are for child welfare Of which are for cleaning expenses Of which are for social welfare 53 Of which are for welfare for the elderly Of which are for child welfare Of which are for cleaning expenses 3, , ,688.9 (Unit: billion) 12, , ,87.4 3, , , , , , ,79.1 1, , , , , , , , , , ,25.9 5, , The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance 15

18 What are expenses used for? 2 Expenses by Type Classified by type, expenses can be divided into "mandatory expenses" (personnel expenses, public assistance expenses, and public debt payments), the payment of which is mandatory and difficult to reduce at the discretion of individual local governments, "investment expenses," including ordinary construction expenses, etc., and "other expenses." Composition of Expenditures by Type (FY29 settlement) Net total 96,16.4 billion Investment expenses 14,518.5 billion (15.1%) Ordinary construction expenses 14,38.9 billion (15.%) Unsubsidized project expenses 7,2.3 billion (7.5%) Subsidized project expenses 5,899.4 billion (6.1%) Other expenses 35,672.7 billion (37.1%) Mandatory expenses 45,915.2 billion (47.8%) Personnel expenses 23,975.6 billion (24.9%) Public assistance expenses 9,86.3 billion (9.5%) Public debt payments 12,853.2 billion (13.4%) Prefectural total 5,245.3 billion Investment expenses 7,766.1 billion (15.5%) Ordinary construction expenses 7,689. billion (15.3%) Unsubsidized project expenses 3,175.6 billion (6.3%) Subsidized project expenses 3,354.9 billion (6.7%) Other expenses 2,696.1 billion (41.1%) Mandatory expenses 21,783.1 billion (43.4%) Personnel expenses 14,286.2 billion (28.4%) Public assistance expenses billion (1.8%) Public debt payments 6,582.7 billion (13.1%) Municipalities total 52,18.4 billion Investment expenses 7,341.1 billion (14.1%) Ordinary construction expenses 7,266.3 billion (14.%) Unsubsidized project expenses 4,256.6 billion (8.2%) Subsidized project expenses 2,72.8 billion (5.2%) Other expenses 2,474.7 billion (39.4%) Mandatory expenses 24,22.6 billion (46.5%) Personnel expenses 9,689.5 billion (18.6%) Public assistance expenses 8,172. billion (15.7%) Public debt payments 6,341.1 billion (12.2%) 16

19 Trends in Personnel Expenses 28, (Unit: billion) 27, 26, 25, 16, 15, 12, 11, 1, 9, Breakdown of Personnel Expenses by Item 1 % , ,838.3 Net total 26, , , , , ,256.3 Prefectures 24, , , , , , , ,8.615,11.315, , , ,86. 11,4.5 1, , , , ,124. 1, , ,689.5 Net total 23,975.6 billion Employee salaries 16,763.1 billion 69.9% Local public servant mutual-aid associations, etc. 3,33.6 billion 13.9% Retirement allowances 2,716.1 billion Base salaries 11,99.4 billion 46.3% Other 5,663.7 billion 23.6% 11.3% Other 1,165.8 billion 4.9% Municipalities Prefectures 14,286.2 billion 2,77.8 billion 14.5% 1,429.3 billion 1.% 6,887. billion 48.2% 6,355.5 billion 1,47.6 billion 65.6% 72.9% Municipalities 9,689.5 billion 4,212.4 billion 43.5% 1,252.8 billion12.9% 1,286.8 billion13.3% 2,143.1 billion 3,52.6 billion 22.1% 24.7% billion2.6% billion 8.2% The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance 17

20 Trends in the Breakdown of Expenditures by Type (ordinary account net total) In recent years, mandatory expenses such as public assistance expenses, public debt payments, etc., have increased, while there has been a decline in such items as ordinary construction expenses. Unit: Ratio with FY1997 set at 1. FY1997 Mandatory expenses Ordinary construction expenses Reserves Total expenditures Personnel expenses 26,928.7 Public assistance expenses 6,162.1 Public debt payments 1, ,749.2 Subsidized project expenses 11,6.7 Unsubsidized project expenses 15, , , ,356.9 (Unit: billion) FY22 Mandatory expenses Ordinary construction expenses Reserves Total expenditures Personnel expenses Public assistance expenses Public debt payments Subsidized project expenses Unsubsidized project expenses FY27 Mandatory expenses Ordinary construction expenses Reserves Total expenditures Personnel expenses Public assistance expenses Public debt payments Subsidized project expenses Unsubsidized project expenses FY29 Mandatory expenses Ordinary construction expenses Reserves Total expenditures Personnel expenses 23,975.6 Public assistance expenses Public debt payments 52 14,38.9 Subsidized project expenses 5,899.4 Unsubsidized project expenses 7,2.3 45, , , , , * Public assistance expenses: Expenses which include child welfare expenses, livelihood assistance expenses, etc., aimed at assisting the needy, children, the elderly, mentally and physically disabled, etc., as a part of the social security system. * Ordinary construction expenses: Expenses necessary for the construction of social capital, such as roads, bridges, parks, schools, etc.

21 Flexibility of the Financial Structure How can local financial administration respond to the demands of local governments? In addition to financial resources allocated for mandatory expenses that require payment each year, local governments must also secure financial resources for measures to respond properly to changes in the social economy and administrative needs, in order to accurately meet the needs of residents. The extent to which these financial resources have been secured is called the flexibility of the financial structure. 1 Shifts in the ordinary balance ratio FY2 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 (Fiscal year) Breakdown of the ordinary balance ratio (Net total) 1 (%) Ordinary Balance Ratio The ordinary balance ratio (the weighted average excluding special wards and partial administrative associations, etc.) showed a 1. percentage point year-on-year increase to 93.8%, reaching its highest level since calculation was started, and has maintained a high level. (%) Prefectural Net total Municipal Other Personnel expenses (%) Public debt payments (%) The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance FY2 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 (Fiscal year) 19

22 2 Real Debt Service Ratio and Debt Service Payment Ratio Because public debt payments (which are payments of the principal and the interest on the debts of local governments) are particularly lacking in flexibility, it is necessary to give constant scrutiny to trends in such payments. The real debt service ratio and debt service payment ratio are indices used to determine the extent of the public debt payment burden. State of the Real Debt Service Ratio For information on the state of the real debt service ratio, please refer to the State of the Ratio for Determining Soundness and Ratio of Fund Shortages (page 29). Trends in the Debt Service Payment Ratio 2 (%) Prefectures Net total Municipalities FY2 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 (Fiscal year) 2 * Debt service payment ratio: The debt service payment ratio indicates the ratio of general revenue resources allocated for public debt service (general financial resources allocated for public service, including the principal and interest repayments on local bonds) to the total amount of general revenue resources. This index is used to determine the flexibility of the financial structure by assessing the degree to which public debt payments restrict the freedom of use of general financial resources.

23 Outstanding Local Government Borrowing What is the status of debt in local public finance? 1 Outstanding local government borrowing, the debts of local governments, amounted to approximately 139 trillion at the end of FY29. This figure has been increasing in recent years due to factors such as the need to supplement tax revenue as a result of tax cuts and the issue of extraordinary financial measures bonds. The figure is 1.42 times larger than total revenue and about 2.64 times larger than the total of general financial resources, such as local taxes and local allocation tax Trends in Outstanding Local Government Borrowing (Unit: trillion) FY1997 FY22 FY25 FY26 FY27 FY28 FY29 (End of FY) Economic stimulus measures Extraordinary financial measures bonds Tax revenue supplementary bonds Tax-reduction supplementary bonds, etc. Financial resource measures bonds, etc. Other local bonds The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance Notes: 1. Outstanding local government borrowing excludes special fund public investment bonds. 2. Figures for economic stimulus measures are estimates. 21

24 2 Outstanding Local Finance Borrowing Outstanding local public finance borrowing which includes borrowing in the special account for local allocation tax and transfer tax grants, which are used to address local financial resource shortages, as well as the redemption of public enterprise bonds borne by the ordinary account remains at a high level, amounting to approximately 198 trillion at the end of FY29. Trends in Outstanding Borrowing that Should be Included in the Ordinary Account and the Ratio of Outstanding Borrowing to Gross Domestic Product (%) Ratio of outstanding borrowing that should be included in ordinary accounts to (nominal) GDP (Unit: trillion) , , , ,75.9 2, , , , , , ,17.8 billion 25,275.4 billion Outstanding public enterprise bonds (included in ordinary accounts) , , , , , , ,617.3 billion Outstanding borrowing from special account for local allocation tax and transfer tax grants 14 23, , ,1.7 14, , , , ,278.1 billion 6 111, FY1997 FY22 FY25 FY26 FY27 FY28 FY29 Outstanding local government bonds (End of FY) 22 Notes: 1. Outstanding local government borrowing excludes special fund public investment bonds. 2. Outstanding public enterprise bonds (included in ordinary accounts) are estimates based on settlement account statistics.

25 Local Public Enterprises What is the status of local public enterprises? 1 1 (%) Ratio of Local Public Enterprises Local public enterprises play a major role in improving the standard of living of residents. Current water-supply population out of million million (99.4%) Sewage disposal population out of 18.9 million million (91.3%) Water-supply business Sewage business (including small-scale water supply business) No. of passengers per year out of 22,724 million 3,2 million (13.2%) Transportation business (railways) No. of passengers per year out of 4,476 million 956 million (21.4%) Transportation business (buses) No. of hospital beds out of 1,61, 216, (13.5%) Hospitals The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance Notes: 1. The graph shows the ratio of local public enterprises when the total number of business entities nationwide is set at Figures for the total number of enterprises nationwide have been compiled from statistical materials of related organizations. Figures for local public enterprises have been compiled from figures for the total number of enterprises and settlements for the same fiscal year. 23

26 2 Number of Businesses Operated by Local Public Enterprises There are 8,93 businesses that are operated by local public enterprises. By type of business, sewage accounts for the largest ratio, followed, in order, by total water supply, hospitals, care services, and housing development projects. No. of businesses 8,93 Other 1,344 (15.%) Residential development 495 (5.6%) Care services 63 (6.8%) Hospitals 655 (7.4%) (End of FY29) Sewage business 3,633 (4.8%) Total water-supply business 2,173 (24.4%) Water-supply business 1,365 (15.3%) Small-scale water-supply business 88 (9.1%) 3 Scale of Financial Settlement The scale of total financial settlement is 18,459.4 billion. By type of business, sewage accounts for the largest ratio, followed, in order, by hospitals, total water supply, transportation, and residential development. Scale of Financial Settlement 18,459.4 billion Other 1,18.5 billion (6.1%) (End of FY29) Sewage business 6,263.1 billion (33.9%) Residential development 1,57.5 billion (5.7%) Transportation 1,218.9 billion (6.6%) Total water-supply business (including small-scale water supply) 4,229.5 billion (22.9%) Hospitals 4,581.9 billion (24.8%) 24

27 4 Management Status Local public enterprises had a surplus of billion. By type of business, while total water supply, electricity, and sewage showed a surplus, hospitals continue to register a deficit. Trends in the Management Status of Local Public Enterprises Surplus Deficit 5 (Unit: billion) (Unit: billion) FY1997 Total surplus Other 24.2 Sewage business 32.4 Electricity 17.7 Industrial water supply 8.2 Total water supply (including small-scale water supply) Transportation Hospitals 57.8 Gas 2.4 Total deficit Note: denotes negative figures. Total balance FY22 Total surplus 31.3 Other 36.5 Sewage business 75.5 Electricity 11.4 Industrial water supply 18. Total water supply (including small-scale water supply) Transportation Hospitals Gas 1.5 Other 2.3 Total deficit FY25 Total surplus 51.2 Other Sewage business 8.5 Electricity 9.3 Industrial water supply 23.9 Total water supply (including small-scale water supply) Transportation 64. Hospitals Gas 2.2 Other 19.7 Total deficit FY26 Total surplus Other 72.3 Sewage business 89.3 Electricity 12.2 Transportation 4.2 Total water supply 25.3 (including small-scale water supply) Industrial water supply 17.8 Hospitals Gas 1.3 Other 17.5 Total deficit FY27 Total surplus Other Sewage business 15.4 Electricity 4.4 Transportation 1.2 Industrial water supply 19.8 Total water supply (including small-scale water supply) Hospitals Gas 4.3 Other 13.6 Total deficit FY28 Total surplus Other 21.5 Gas 5.2 Sewage business 16. Other 81.5 Total deficit FY29 (Fiscal year) Total surplus Other 15.3 Sewage business Electricity 7.6 Electricity 9.2 Transportation 19.7 Transportation 34. Industrial water supply 24.3 Total water supply (including small-scale water supply) Hospitals Gas 3.4 Industrial water supply 1.4 Total water supply (including small-scale water supply) Hospitals 17. Other 47.1 Total deficit The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance

28 Promotion of the Soundness of Local Public Finance 1 Overview of the Act on Assurance of Sound Financial Status of Local Governments, etc. Amid extremely severe financial conditions and the hardening of the financial structure caused by such factors as the redemption of municipal bonds issued in the past and the aging of society, the soundness of local public finance is an important issue. A number of issues were pointed out in the conventional system for the financial reconstruction of local governments, such as the lack of disclosure of easily understood financial information and a function for prompt correction. Accordingly, the present system of local government financial reconstruction was drastically revised for the first time in about 5 years, and in June 27 the Act on Assurance of Sound Financial Status of Local Governments (27, Law No. 94) was enacted as a new system to thoroughly establish and disclose financial indexes and to strive for the early stage achievement of soundness and rebuilding of financial affairs. Financial indexes have been in force since April 28 and regulations concerning the duty to formulate financial soundness plans, etc., have been in force since April 29. Comparison of the New and Previous Reconstruction Laws New Law Soundness stage Establishment of indexes and thorough information disclosure Flow indexes: Real deficit ratio, consolidated real deficit ratio, real debt service ratio Stock indexes: Future burden ratio = indexes by real liabilities, including public enterprises, third-sector enterprises, etc. Reported to the council and publicity announced, attached to auditor inspection Early financial soundness Financial soundness through independent improvement efforts Formulation of financial plans (approval by the council), mandatory requests for external auditing Report on progress of implementation to the council and public announcement every fiscal year If the early achievement of financial soundness is deemed to be significantly difficult, the Minister for Internal Affairs and Communications or the prefectural governor makes necessary recommendations. Soundness of public enterprise management Financial rebuilding Solid rebuilding through involvement of the central government, etc. Formulation of financial rebuilding plans (approval by the council), mandatory requests for external auditing Agreement on the financial rebuilding plan can be sought through consultation with the Minister for Internal Affairs and Communications. (No agreement) Restrictions on the issue of local bonds, excluding disaster rehabilitation projects, etc. (Agreement) Possible to issue local bonds (rebuilding transfer special bonds) whose redemption deadline comes within the plan period in order to transfer the balance shortfall. If financial management is deemed not to conform with the plan, etc., budget changes, etc., are recommended Sound finance Financial deterioration Previous Reconstruction Law Issues faced with the previous Reconstruction Law Disclosure of easy-to-understand financial information, etc. is inadequate. There are only standards for reconstruction organizations and no early corrective functions. There are only balance indexes centered on the ordinary account, and even if problems relating to the financial condition of stock (liabilities, etc.) are cited, they are not taken up. There are no early corrective functions for public enterprises, etc. Law on Special Measures for the Promotionof Local Financial Reconstruction (Previous Reconstruction Law) Formulation of financial reconstruction plan through application by the deficit organization (Agreement of the minister of internal affairs and communications if necessary.) *Prefectures with a deficit ratio of 5% or more and municipalities with a deficit ratio of 2% or more cannot issue local construction bonds unless they undertake financial reconstruction in accordance with the law. Corresponding reconstruction system for public enterprises as well (Local Public Enterprise Law) 26

29 Targets of the Ratio for Determining Soundness Previous Reconstruction Law Act on Assurance of Sound Financial Status of Local Governments Real deficit ratio Bad Debt *Calculated for each public enterprise account Local government General account Special accounts Public enterprise accounts General account, etc. Public enterprise accounts Partial administrative associations, wide-area local public bodies Local public corporations, third-sector enterprises, etc. Real deficit ratio Consolidated real deficit ratio Real debt service ratio Future burden ratio Financial shortfall ratio *Calculated for each public enterprise account. The Role of Local Public Finance Trends and Issues in Local Public Finance The Status of Local Public Finance 27

30 Outline of the Ratio for Determining Soundness Real deficit ratio = Real deficit of general account, etc. Standard financial scale Real deficit of general account, etc.: Amount of real deficit in general account and special accounts that are equivalent to an ordinary account Amount of real deficit = amount of advanced appropriation + (amount of deferred payment + amount of business balance carried forward) Consolidated real deficit ratio = Consolidated real deficit Standard financial scale Consolidated real deficit: The difference, if the total of A and B exceeds the total of C and D A. The total real deficit in general accounts and special accounts that have a real deficit, excluding public enterprises (enterprises regulated and enterprises not regulated by the Local Public Enterprise Law) B. The total deficit of funds in special accounts of public enterprises that have a deficit of funds C. The total real balance surplus in general accounts and special accounts that have a real balance surplus, excluding public enterprises D. The total surplus of funds in special accounts of public enterprises that have a surplus of funds Real debt service ratio (3-year average) = (Redemption of principal and interest of local bonds + quasi-redemption of principal and interest) (special financial resources + amount included in standard financial requirements pertaining to redemption of principal and interest and redemption of principal and interest) Standard financial scale (amount included in standard financial requirements pertaining to redemption of principal and interest and quasi-redemption of principal and interest Quasi-redemption of principal and interest: Total of A through E A. Amount corresponding to annual redemption of principal in a case of principal equal amortization in which the redemption period is 3 years for bullet local bonds B. The amount of transfers from general accounts, etc., to special accounts other than general accounts, etc., acknowledged to be appropriated for revenue resources for the redemption of public enterprise bonds C. The amount of burdens and subsidies to associations/local development corporations ( associations, etc. ) acknowledged to be appropriated for revenue resources for the redemption of local bonds issued by the associations, etc. D. Expenditures based on debt burden that corresponds to debt service E. Temporary loan interest Future burden ratio = Future burden amount (amount of appropriable funds + estimated amount of special revenue sources + amount expected to be included in standard financial requirements pertaining to outstanding local government bonds, etc.) Standard financial scale (amount included in standard financial requirements pertaining to redemption of principal and interest and quasi-redemption of principal and interest Future burden amount: Total amount of A through H A. Outstanding local government bonds in general accounts, etc., as of the end of the fiscal year previous to the applicable fiscal year B. Expected amount of expenditure based on the debt burden (those pertaining to the expenses, etc., of each item under Article 5 of the Local Finance Act) C. Estimated amount of burden, etc., from general accounts, etc., to be appropriated for the redemption of principal of local bonds of accounts other than general accounts, etc. D. Estimated amount of burden, etc., of the applicable local government to be appropriated for the redemption of principal of local bonds of the associations, etc., of which the applicable local government is a member E. The estimated amount of burden in general accounts, etc., for the expected amount of retirement allowance to be paid (amount of allowance that will be paid to all employees at the term end) F. The estimated amount of debts of certain corporations established by the local government and debt burden in the case of bearing the debts for such corporations, that is included in general accounts, etc., giving consideration to the financial and business condition of the those corporations, etc. G. Consolidated real deficit H. The estimated amount corresponding to the consolidated real deficit of the associations, etc., included in general accounts, etc. Amount of appropriable funds: Funds under Article 241 of the Local Autonomy Act that can be appropriated for the amount of redemption, etc., of A through F Financial shortfall ratio = Deficit of funds Size of business Fund deficit: Fund deficit (enterprises regulated by the law) = (current liabilities + outstanding local government bonds issued to be appropriated as financial resources for expenses other than construction and improvement expenses, etc. - current assets) resolvable amount of financial shortfall Fund deficit (enterprises not regulated by the law) = (amount of advanced appropriation + amount of deferred payment and amount of business balance carried forward + outstanding local government bonds issued to be appropriated as financial resources for expenses other than construction and improvement expenses, etc.) resolvable amount of financial shortfall * Resolvable amount of financial shortfall: A fixed amount to be deducted from the fund deficit when there are circumstances in which fund deficits arise due to the nature of the project or structurally, for a given period of time after the commencement of the project. * Public enterprises that are engaged in residential land development projects are subject to a special exception concerning the calculation of the current assets pertaining to the assessment of land, etc. Size of business: Size of business (enterprises regulated by the law) = amount of operating revenue amount of consigned construction profit Size of business (enterprises not regulated by the law) = amount of profit corresponding to operating revenue amount of profit corresponding to consigned construction profit * Public enterprises adopting the designated administrator system (usage fee system) are subject to a special exception concerning the amount of operating revenue. * The size of business of public enterprises that are only engaged in residential land development projects shall be the total amount of capital and debts that show the financial resource scale for business management (scale of procured funds). 28